PointCast cuts one-third of its staff

Push media pioneer PointCast laid off close to a third of its workforce today after buyout talks with a consortium of telephone companies fell through, the company said.

PointCast let go about 75 of its 220 workers. Employees were told that the layoffs would take effect immediately, and company executives declined comment on whether severance would be paid.

Only yesterday, the company gave out two-week incentive bonuses to employees who agreed to stay through the end of March as PointCast continued to look for a buyer.

"We received a letter from the RBOCs [regional Bell operating
companies] that they would not sign a definitive agreement," company spokeswoman Wendy McCarthy said, noting the letter came within the last two weeks. "Today we told employees the telco deal was not going to happen...the DSL strategy was resource intensive and our new refocus is not as resource intensive. That's why we are having the layoffs."

Sources said PointCast's high spending rate had reduced its pool of potential buyers to such large companies as telcos and media conglomerates. But with its effort to reduce its expenses, the chances of finding an Internet investor or buyer could improve significantly.

"We intend to refocus the company in a way that leverages our assets so we can capitalize on the convergence of content, commerce, and communications," McCarthy said. "We are developing a business plan that takes advantage of this."

Sources said the company's plan has already been completed. They said the company intends to reduce the size of the PointCast software and make its news and information push service more Web-centric.

Phil Koen, PointCast's chief executive, is taking this business plan to potential investors to raise much-needed capital, sources said. Koen is likely approaching venture capitalists who have compatible companies in their portfolio, they added.

McCarthy acknowledged that the company wants to attract $15 million to $20 million, either through direct investment or an outright buyout of the company.

PointCast has been burning through its cash at a rate of $2.5 million a month and hopes to get that down to about $1 million, sources said. Although the company had raised roughly $16 million in interim financing last fall from the group of telecom companies, most of that money has run out.

End of high-speed dream
The news of the layoffs reflects the end of PointCast's attempts to leap into the high-speed consumer Internet world at the head of a consortium of telephone companies. It also marks a low point in the history of what was once one of the Net's highest-flying companies.

The company has struggled to find a buyer or deep-pocketed partner for the last nine months after retreating from an attempt to launch an initial public offering in July. Its subscriber figures have been stagnant for a year, while company engineers have worked to stabilize its technology platform.

Last fall, PointCast executives hung their hopes on a deal with a group of telephone companies that included US West, Bell Canada, and BellSouth, in addition to software giant Microsoft. The group had even gone as far as to sign an exclusive negotiating agreement, or letter of intent, with PointCast in exchange for receiving interim debt financing. The plan was to buy out PointCast and then take it public, sources said.

Led by then-CEO David Dorman, PointCast hoped to create a broadband Internet service along the lines of @Home, linking its technology and media content with the telcos' high-speed digital subscriber line networks. Dubbed "Project Newnet," the plan monopolized the company's business and engineering resources for months.

Executives even shopped around the idea to advertising agencies to help develop a branding campaign in anticipation of a deal. But as the expiration date for the consortium's exclusive agreement came and went in late January, the deal began to unravel.

"The telcos brought Microsoft to the table early on," one source said. "But then the telcos felt Microsoft wanted too much control, and Microsoft fell out of the deal in mid-February."

At that time, BellSouth said it wanted either Bell Atlantic or SBC to join the consortium, in order for a definitive agreement to be signed.

Bell Canada and US West wanted to go through with the deal and launch
the service, but BellSouth was not willing to finalize the deal unless it had an exit clause, allowing it to back out of the agreement if Bell Atlantic or SBC refused to sign aboard, sources said.

BellSouth declined to comment on the proposed deal, saying its involvement was no more than "speculation."

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